Even though ETH reached an all-time high, outperformed Bitcoin by 16%, and the ETH/BTC pair climbed to a 10-week high in November, it did struggle to stay above its $4,000 psychological support. 

Last week, ETH witnessed the largest red candle of -11% in the daily charts in eleven weeks. It declined from its 7-day ATH of $4,550 to $3,933 after a market-wide sell-off. 

Currently, it stands at $4,253, having regained around 3.2%. 

The price of any cryptocurrency is affected by various general market forces and specific factors particular to the cryptocurrency. There’s a complex mix of factors that influence short-term fluctuations and long-term changes in ETH price activity.

Supply and Demand of a Cryptocurrency

Straight from the pages of a school-level economics book comes the law of demand and supply. The theory explains the relationship between the price and the demand/supply of a product and, consequently, between buyers and sellers.

Whenever the market faces a sell-off, i.e., the demand for ETH falls, its price goes southwards. Similarly, whenever the demand is high or the bulls are in action, ETH prices go up. 

This law also holds good in the case of the supply-price relationship in the ETH market. When ETH is in short supply, its prices go up, and vice versa. Post the London hard fork in August, around one million ETH were burned, restricting its supply and helping ETH prices reach all-time highs.

Market Trends 

The bullish or bearish mood of the overall market impacts all cryptocurrencies in one way or the other. ETH’s prices also swell or puncture under the impact of the shifts in global market capitalization and trading volume across exchanges. 

Ethereum has a first-mover advantage in the league of programmable languages with smart contract compatibility. Almost 80% of the dApps are located on the Ethereum network adding to its net worth. Despite several other efficient blockchains on the scene, Ethereum maintains its dominance. The steady rise of Defi, NFTs, and metaverse-like platforms have further boosted ETH’s prices. 

Collaborations and Use Cases

Cryptocurrencies serve several use cases, the most fundamental distinctions being that of a security token, utility token or a medium of exchange. In the case of Ether – this utility transpires in the form of a utility token driving the Ethereum blockchain that supports numerous Defi platforms, DAOs, dApps, and NFTs.

The current surge in demand for NFTs post the Beeple artwork sale at Christie’s has directly impacted ETH’s growth prospect. About $560 million worth of revenue was generated on the Ethereum network in the month of August.  

Data released by the CryptoRank platform shows that Ethereum remains the top choice for NFT and Defi platforms. Popular NFT platforms such as Open Sea, decentralized exchanges including Uniswap, Sushiswap, etc., and NFT-powered games such as Axie Infinity are amongst the top 10 ETH burners despite ETH’s high gas fees and relatively low transaction throughput. 

Media Coverage and Celebrity Support

Positive media coverage can be a powerful tool in determining the mood of investors. Also, awareness and understanding of technology are two prerequisites for developing a fair and favourable perspective for any product or commodity. 

Lately, mainstream media has become a lot more active on the crypto front. Like any other crypto, Ethereum has been put to the same test. A recent survey found that 52% of the crypto investors planned to buy ETH compared to 48% of investors planning a Bitcoin purchase. 

Besides the media, backing from influencers and celebrities also helps in pushing up the prices in the short term.  World’s leading bank JP Morgan backed Ethereum as a cryptocurrency that derives its value from its applications and is less susceptible to market movements and higher real yields. Square, a payments services behemoth backed by Twitter’s then CEO – Jack Dorsey, recently released the whitepaper of its proposed DEX. 

Regulatory Uncertainties 

The rules and regulations governing the cryptocurrency markets around the world have a direct impact on their prices. Every country has a different perspective on the volatility and anonymity associated with crypto transactions. A restrictive or unfavourable view causes the prices to fall. A positive outlook, on the other hand, could prove to be a catalyst driving growth in the cryptocurrency markets. 

Global events such as the Chinese crackdown on crypto mining, the US SEC’s bipartisan crypto regulation amendments bill in the pipeline, and new coronavirus strain causing fresh fears saw the global crypto markets tumble in recent weeks, which caused ETH prices to dip as well.   

Hard Forks

For any new upgrade on a blockchain, all the nodes have to reach a 100% consensus. Suppose a group disagrees with the latest upgrade or development – in that case, the disagreement leads to the bifurcation of the new blockchain from the old one – creating an entirely new blockchain – this phenomenon is called a hard fork. 

ETH underwent one of its most significant hard forks – the EIP-1556 upgrade or the London hard fork in August that helped the network move to a better consensus mechanism and a ritual of burning tokens every time a transaction is made to add robustness to the Ether token. Post the hard fork; ETH prices have almost doubled and grown by over 500% this year.  

Ethereum awaits another hard fork that won’t happen until 2022. This upgrade is expected to lower the notoriously high transaction fees and the low transaction speed on the Ethereum network. A report published on CryptoDaily states: 

‘Since EIP-1559 got implemented on the 5th of August, ETH’s inflation has decreased by 67.5% and in the recent 30 days by nearly 93%. The total value of all Ethers that have been burned so far is, at current prices, at close to a whopping $6.3 billion. That will, without a doubt, serve as a long-term catalyst for the value of the asset.’

The ETH Derivatives 

Anyone into crypto derivatives understands well that derivatives contracts get affected by the rising or falling price trends and, in turn, impact the value of cryptocurrencies themselves. Derivatives are contractual side-bets on the future price of cryptocurrencies. Research on the same describes this phenomenon as more of a chicken-and-egg problem. 

ETH is heavily traded via crypto derivatives contracts such as call and put options. Any correction phase in Ethereum’s price cycle impacts the bullish or bearish bets in the options expiry. For instance, the 26 November ETH options expiry had the chance of 77% of the bullish bets being wiped out owing to the recent drop in ETH price. On the same day, ETH witnessed the largest one-day percentage loss while being down by 10.12% at $3,941 owing to a huge sell-off.  Though the two events happened in different markets, each event impacted the other to some extent, indirectly.   

Each cryptocurrency reacts differently to different forces depending on the market conditions and a host of other factors. As for Ethereum – it already has begun its recovery mode while mostly moving horizontally around the $4,000 mark. We can only wait and watch the signs to guess what ensues for the largest altcoin in the coming days.